African economists attending the 12th African Economic Conference in Addis Ababa, Ethiopia, have called for more radical monetary policy reforms and an overhaul of the tax policy regime in most countries in order to guarantee the welfare needs of the local population.

The economic researchers from Ethiopia, Kenya and Sudan, who attended session of the conference to discuss “Macroeconomic policies for the inclusive development,” on December 5, 2017, noted broader reforms were required to secure stability in the foreign currency markets and to curb inflation.

“Consistent monetary policy yields the greatest welfare security to the citizens compared to discretionary monetary policy,” said Peter Wamalwa of the Central Bank of Kenya, presenting a paper on the impact of monetary policy on the prices of assets in an open economy.

Discretionary monetary policy is often based on the knee-jerk reaction of the key policy-makers on matters which have an impact on taxation policy, spending and fiscal activities carried out by the respective Central Banks, often known as the monetary policy decision-making bodies.

Wamalwa said while the monetary policy is often used by the respective Central Banks to correct market imperfections which require urgent intervention, the Central Bank should ensure as a priority that the social needs of the households and the firm are taken care off in order to guarantee economic stability.

“The monetary policy is not effective if the asset prices are not included. The response to the monetary policy is more significant,” said Wamalwa, who insists Central Bank interventions to stabilize the domestic prices should allocate the economy’s resources efficiently and in a socially desired manner.

The African Economic Conference is dedicated to discussions on the kind of economic and political governance reforms that are critical in order to ensure structural transformation takes place in Africa.

Wamalwa said focus should remain on the effectiveness of the monetary policy in battling key challenges such as inflation and the foreign currency exchange rate policy.

In his paper, Wamalwa did not entirely dismiss the possibility of the Central Banks relying on discretionary monetary policy, saying it has a role to play when policy weaknesses fail to address market distortions which affect prices in an economy in a more negative manner.

“This affords the monetary authority the flexibility to respond to unanticipated price and output changes as well as dynamic behavior of agents in an economy. This is more relevant to the financial markets where investors make decisions frequently to optimize their portfolio holding,” Wamalwa said.

Speaking during the same session, Saswan Abdul-Jalil, a teaching assistant at the University of Khartoum, Sudan, called for an overhaul of the tax regime in Sudan and broad measures to unlock restrictions which make it much harder for ordinary businesses and individuals to access bank loans.

Terming difficulties in accessing the domestic financial markets due to the government’s increased domestic borrowing and stringent capital controls the “financial repression,” Abdul-Jalil said the capital controls imposed by the government enabled it to borrow at a lower rate domestically.

“It leads to high cost of domestic borrowing because the commercial banks prefer to lend to the government and its effect is 0.8 per cent on the Gross Domestic Product. The capital controls is part of the government’s efforts to raise revenue locally,” Abdul-Jalil argued.

How the trade conflict has fractured global value chains

On 24 August, United States (US) President Donald Trump announced an
increase from 25% to 30% for the existing tariffs on $250 billion of Chinese
imports from 1 October and new 15% tariffs on $300 billion of Chinese imports
from 1 September. In doing so, Trump has reneged on his 13 August decision to
delay until mid-December the imposition of new tariffs, then set at 10%, given
the admission for the first time that they may ‘‘have an impact on US consumers’’.
Hopes that this signalled a possible end to the trade conflict have been dashed.

While it is never too late (or too early) to end a trade dipute, there
are some impacts that may be irreversible.

Once it became clear that the dispute was more than transitory,
investments started to be diverted away from the People’s Republic of China (PRC) and mainly into
Southeast Asia. Investments into and from the US have also been affected
following the PRC’s retaliatory tariffs. There are significant costs associated
with this restructuring. The move itself incurs fixed costs, some of which will
be sunk. There is also the potential increase in variable costs associated with
shifting production simply to avoid tariffs. While the former is a one-off, the
latter is an ongoing increase in production costs. Taken together, these costs
will be substantial.

But how can a 25% tariff justify such a costly move? The fact that it is
taking place suggests at least two factors are at play, which may have been
missed or misunderstood.

The first relates to the difference between nominal and effective tariff
rates, which crucially depends on the share of value added by US and Chinese
producers. This distinction is particularly important given the prevalence of
Chinese (and US) exports that are produced as part of global value chains.
After all, the PRC is (or at least was) the assembly hub for much of the
region’s manufacturing.

Whenever there is Chinese value-added or use of imported inputs from the
PRC, the nominal tariff rate has to be adjusted by a factor equal to the
reciprocal of the Chinese value-added share. The Fung Global Institute and
World Trade Organization together estimated, for example, that only about 10% of a $425 jacket made in the PRC and
sold in the US actually accrues to the Chinese. Therefore, shifting production
away from the PRC would only make economic sense if the cost of moving
production out of the country was less than the effective 250% tariff rate.
That’s ten times the margin implied by the nominal tariff rate. The same
principle applies to the location of production by US firms exporting to the
Chinese market, where they face retaliatory tariffs.

But for goods with high Chinese value-added shares, the effective tariff
may not justify a relocation. In these cases, transhipment may be pursued to
avoid the tariff. This occurs when Chinese exports undergo minimal
processing—sometimes just relabelling—in a third country and are re-exported as
if originating from that country. US Customs and Border Protection have already
identified Viet Nam, Malaysia, and the Philippines as transhipment points.
Although illegal, transhipment reduces, but does not eliminate, the efficiency
loss due to the disruption to supply chains. The US Department of Commerce has started
imposing additional punitive duties on goods it
deems to have been transhipped.

These problems arise because there are no clear rules of origin
specified in determining the nationality of a processed product, leaving the
bill of lading as the main certification mechanism.

The second reason could relate to how the current dispute is being
viewed. If it is seen as a symptom of larger, underlying issues at play, such
as a geopolitical struggle for global economic dominance, then it will not end
here. Chinese multinational corporations (MNCs) and foreign MNCs operating in
the PRC that feel the tensions will persist and find new forms of
expression will continue restructuring their
production in order to diversify long-term risk.

These two reasons can explain how a relatively modest tariff has permanently
fractured Asia’s supply chains.

If any of this sounds familiar, it may be because a similar dispute took
place just over 30 years ago between the US and Japan, which was also triggered
by a large bilateral trade imbalance. Then, the punishment for Japan came in
the form of a forced appreciation of the yen through the Plaza Accord. Japan
responded by moving labor intensive segments of manufacturing production to
lower wage destinations in Southeast Asia, giving birth to ‘’Factory Asia’’. In
the process, Japan was able to retain its export competitiveness through
efficiency gains and by circumventing some of the currency revaluation effects.

It was also able to shift a part of its export surplus to the balance of
payments accounts of the countries it had invested in, thereby appearing to
shrink its bilateral surplus with the US. The PRC may try and do the same.

But there is an important difference with the current US–PRC trade
tensions. The embedding of Asia into global value chains benefited consumers around
the world and raised world incomes. This trade conflict is having the
opposite effect, and the fallout could continue for a long time—even if the
dispute ends soon.

Related

Supporting informal carers: Six policy challenges and how to meet them

Everybody is likely to become a carer at
some point in life, providing care for a spouse, family member, friend or
neighbour with long-term care needs. The majority of such non-professional
care, referred to as informal care, is provided by women.

Societies in the UNECE region heavily
depend on informal carers to meet the growing demand for long-term care in
ageing populations. While there are efforts to expand formal long-term care
services to respond to this growing demand, informal carers are estimated to
cover about 70 to 95 per cent of all care needs.

The European Social Survey on informal
carers in 20 countries in the region found that on average one in three adults
between 25 and 75 provided informal care, and about one in 13 were providing
care for a minimum of 11 hours a week.

While informal unpaid care saves public
spending on formal care services, it has many hidden costs that are borne
primarily by informal carers, those they care for and their families, and
ultimately concern society at large. These include the opportunity costs of
lost earnings, careers and pension entitlements, as well as the health
consequences of the physical and psychological burden experienced.

The latest UNECE Policy Brief on Ageing
therefore focuses on the challenging roles of informal carers. It highlights
six key policy challenges and presents strategies to address them, drawing on
policy practice shared by members of the UNECE Working Group on Ageing:

Acknowledging the contribution of informal carers

Although informal carers cover a great part of the care needs, they are
often called the ‘invisible workforce’ in long-term care systems as they are
rarely registered or counted, and their status as informal care provider is
often not formally recognized. Strengthening the voice and representation of
informal carers is the first step to address the challenges facing informal
carers. In the Czech Republic, a new multi-layered government-funded project
has been initiated to rigorously understand the current situation of informal
carers, and to raise awareness among the general public, informal carers, and
relevant stakeholders. The project includes a wide range of activities from
analytical and research activities to educational seminars, awareness raising
events, and practical guides for both informal carers and relevant
stakeholders.

Informal carers are often challenged to
reconcile employment and other responsibilities in their personal lives with
care requirements, which can require a significant time commitment. The
entitlement to care leave and flexible work arrangements are two main support
measures which can help informal carers to keep a balance between their
personal lives and caring. In France, for example, employees can apply for the
familial solidarity leave and/or the caregiver leave for their family members
or persons sharing the same home, for up to three months with the possibility
of renewal. German legislation on flexible working arrangements allows working
carers to take part-time care leave over a period of up to 24 months while
continuing to work a minimum of 15 hours per week.

Providing informal carers with an adequate income and social security

Informal carers sometimes need to reduce
their working hours or even quit their jobs to meet care responsibilities. This
may result in not only an immediate lack of income, but also a subsequent lack
of pension entitlement. In addition, financial burden can be aggravated by
expenses related to the special needs of the person with care needs, or the
cost of adaptations required to make the living environment more accessible.
There are a number of ways in which informal carers can be financially
supported. In Ireland, for example, a means-tested carer’s allowance is paid to
informal carers to support full-time care. This allowance lasts until 12 weeks
after the end of informal care to financially help the carers to prepare for
their post-caring lives. Some countries allow informal carers to be employed by
the municipality, with a wage similar to a formal home helper (e.g. Finland and
Sweden); or acknowledge informal carers’ contributions by covering their
contributions to social pension insurance (for example in Austria, Germany and
Luxemburg).

Access to community-based services

The lack of access to community-based
services is another problem faced by informal carers. Day care services and
home care assistance are examples of the community-based services that enable
informal carers to have time for employment or personal lives. In Malta, a
‘Respite at Home’ service was established in 2017 to provide formal care
support in the home of older persons by a qualified carer, to provide some time
off to the informal carer.

Access to information and training

Informal carers do not normally have
enough time to prepare for their new role. It often happens all of a sudden,
without any relevant information or training provided in advance. It is
important to make useful information and training easily accessible and
available to informal carers via different channels including telephone,
online, and/or service centres. To facilitate access to information, a
“one-stop-shop” support centre was established in the Finnish South-Savo
region, providing over 70 services ranging from information and counselling to
preventive services in one place.

Protecting the health and well-being of informal carers

Informal care can be physically and
mentally demanding, leading carers to often feel exhausted, lonely, and
strained. Moving care recipients to residential care homes can be one of the
ways to reduce the burden on informal carers, especially when care needs are
intensive and have a negative impact on the health and well-being of the
informal carer. Peer support groups can also play an important role in reducing
social isolation and providing a network for mutual support. In Ukraine, self-
and mutual help groups have been set up in 9 cities for families caring for
people with dementia. This project not only provides informal carers with
access to information on dementia, but also allows them to socialize and take a
break from care giving and share with others.

Adequate support and social protection for
informal carers will enhance choices, health and well-being and reduce the
risks of social exclusion.

Related

The World Economic Forum, in partnership with
the International Trade Centre, today released the Africa E-Commerce Agenda, an eight-step action plan to realize the benefits of e-commerce for the
continent.

E-commerce has the potential to create as many
as 3
million new jobs in Africa by 2025, according to some
researchers, yet e-commerce start-ups face many obstacles, including low
consumer digital trust, poor infrastructure and low regional integration.
Building on consultations with business leaders and experts, the Africa
E-Commerce Agenda is a call to action for Africa’s political leaders, the
international trade community and the development community.

“The scale of the challenges should not hold
back effort, given that e-commerce could bring jobs for youth, new markets for
rural communities, and empower female entrepreneurship, among other benefits,”
said Elsie Kanza, Head of the
Regional Agenda, Africa; Member of the Executive Committee. “Action by Africa’s
leaders and international partners on an agreed set of priorities can ensure
e-commerce is a force for sustainable development. With e-commerce policy
debate ramping up in the region and new partnerships for capacity-building on
the rise, now is a critical time to consolidate focus.”

Albert M. Muchanga, African Union Commissioner for Trade and Industry, said: “E-commerce is
the future, and Africa will fully leverage it to secure hers.”

Each action item identifies challenges and sets
goals to help policy-makers navigate the multi-dimension e-commerce landscape.
It offers ways to address the challenges – including through public-private
collaboration – and calls on the international development community to step
up. It suggests how African economies may best use domestic, regional and
international policy, given the borderless potential of e-commerce.

“The future of trade is digital, and a large
component of this is e-commerce, which has the potential to transform how
businesses in Africa produce, sell and consume goods and services,” ITC
Executive Director Arancha González
said. “This eight-point plan sets out the e-commerce ecosystem in which
governments and the business community need to invest in order to harness the
power of the digital marketplace.”

The eight agenda action items are:

Refresh policies

Expand
connectivity

Upgrade
logistics

Enable
e-payments

Manage data

Grow the tech
industry

Coach small
business

Join forces

The agenda recognizes the importance of the
larger ecosystem of digital technology and supporting elements.

“Africa’s E-commerce Agenda is a thoughtful,
concrete and actionable workplan to promote inclusive digital trade that
benefits individuals, with small businesses set to gain most,” said Ambassador Demetrios Marantis, Senior
Vice-President, Global Head of Government Engagement Primary Organization at
Visa Inc. “Visa is proud to be implementing this agenda, along with private-
and public-sector partners, to realize the promise of e-commerce across the
continent.”

The African Union Commission, together with the
Economic Commission for Africa and other relevant stakeholders, have been
tasked by governments in the region to develop a digital trade and digital
economy development strategy by February 2020. The World Economic Forum and the
International Trade Centre stand ready to work with partners to advance
progress.

The agenda is the result of consultations at two
regional public-private dialogues. The first was held alongside the Africa
eCommerce Week in Nairobi, Kenya in December 2018 and attended
by 60 participants. The second took place during the Transform Africa Summit in Kigali, Rwanda in May 2019, with 25 high-level stakeholders. The Agenda
was circulated to the eTrade Africa Community; the broader eTrade for all network led by the United Nations Conference on Trade and Development
(UNCTAD); the World Economic Forum Africa Regional Business Council; and the
World Economic Forum Global Future Council on
International Trade and Investment. The Agenda also benefited from written comments from organizations and
entities active in the region.